Property investment riches might seem elusive, but there is no secret, complicated formula for getting it right. Instead, there are four crucial factors that will determine your success.
Blogger: Steve Waters, director, Right Property Group
After 13 years of actively investing in property and creating property portfolios on behalf of my clients, it is clear to me the same four factors are always critical to property investment profitability.
1. Know your personal investment criteria
This is not about taking risks – it’s about having sound criteria, the patience to find the right opportunity and the willingness to take the right action, sometimes quickly. Affordability and cash flow should be a top priority for all investors as you need to know what a property will cost you every week, both pre- and post-tax. Some other typical criteria to consider may be capital growth requirements, population growth, residential vacancy rates, rental yields and the tax effectiveness of the property. The goal is to be able to identify key opportunities by eliminating those that don’t fit your criteria.
2. Why and what you buy
The biggest myth in real estate investing is: “All that matters is location, location, location.” Other points you may want to consider are the price of property and the price of money. By this I mean you must know exactly what your property is costing you versus the “real” cost of borrowed funds. Another common error in judgement is to favour one type of dwelling over another. The key to profitability is to master the balancing act – balancing your portfolio with a mix of houses, units, town houses and villas, and buying in a mix of locations. Remember, when you buy property you want it to be worth more that day than you paid for it. You make your money on the way into a property by never paying a retail price. There is no crystal ball that tells you what the market will do, so you need to know the fundamentals of what a property will do in a good market and what it will do in a bad market.
3. Who’s helping you with your plan?
Success in property investment is all about surrounding yourself with the right people. Your team should include a financial planner, accountant, conveyancer/ solicitor, finance broker, property manager, insurance provider, skilled tradespeople and, of course, a buyer’s agent to find and negotiate investment opportunities on your behalf. Unless you’re willing to give up your day job or put in the necessary time and effort, the DIY approach (apart from the odd bit of renovation work) may be the surest path to slow or no growth as well as inferior yields.
4. Knowledge x strategy = a balanced portfolio with consistent returns
Theory and philosophy are great, but you must put in the work necessary to understand the market in which you intend to invest. Never try to lessen the effort that is required to learn a market. If you do, the cost to your investment returns will massively outweigh the time you’ve saved. Once your portfolio has been created, the idea is for it to pay for itself.
Property investment is about being active all the time. If you don’t have the necessary time, that’s when you may choose to use a buyer’s agent. I believe a vast majority of opportunities cannot be observed from the sideline, you must be in the game. The best deals come from the best opportunities and the best opportunities go to those who are prepared.
Remember, fall in love with the process, not the decision!